Anyone an IT contractor?

I need advice. I'm currently permanent but have possibly been offered a six month contract elsewhere.

How does it work and how does it compare to standard pay? Eg £20/h, £30/h, £40/h and £50/h works out to what in comparison to annual salary? £35k, 40k, £60k? more (that would be nice!)

Also, how do I go about setting stuff up? I've been told I could set up my own company for about £70 or go through an 'umbrella company', whatever one of those are. And what about tax etc?

Ok this is from memory but here it goes, someone please correct me if I’m wrong.

Setting up your own company:
There are a number of ways you can do this, Sole Trader, Partnership with someone else, LTD Company or PLC.

The two you will be interested in are Sole Trader and LTD Company.

Sole Trader would be basically "Kate trading as Magic Consulting", any debts the company runs up, if the company gets sued etc its down to you. Possibly best avoided if you’re contracting, unless your doing something simple like cutting peoples grass.

LTD Companies:
LTD Companies are very interesting to a contractor since the company is limited, it basically means you (personally) can only be sued for the number of unpaid shares you have. The company name would be something along the lines of "Magic Consulting LTD" with a LTD company however, you have to file accounts to companies house every year along with some other gubbins.

From companies house re: ltd companies…

“Private company limited by guarantee - members' liability is limited to the amount they have agreed to contribute to the company's assets if it is wound up. This includes all RTM (Right to Manage) companies-, commonhold associations and those community interest companies which are companies limited by guarantee.“

Setting up your own company is simple, If you fill out the forms directly via companies house it is very cheap see here http://www.companieshouse.gov.uk/ Or alternatively if you use a registration agent it will cost between 70-150quid.


If your contracting it’s not too bad, but if your setting up your own consultancy you should be prepared (i.e. savings) to live for at least 6months with out any work, whist word gets around, you find regular clients etc.

From memory umbrella companies take a percentage of what you earn and manage all your taxes, accounts etc. But overall I believe if you manage things correctly you would be better off with your own LTD company.

Dan
Not just your garden variety geek.

Originally Posted by Kate

I need advice. I'm currently permanent but have possibly been offered a six month contract elsewhere.

How does it work and how does it compare to standard pay? Eg £20/h, £30/h, £40/h and £50/h works out to what in comparison to annual salary? £35k, 40k, £60k? more (that would be nice!)

Also, how do I go about setting stuff up? I've been told I could set up my own company for about £70 or go through an 'umbrella company', whatever one of those are. And what about tax etc?

Would take a while to go through all the ins and outs but here goes the basics.

You HAVE to set up your own company or be part of an umbrella company.

If you do your own there are two kinds, sole trader and a limited company.
Sole trader is the easiest tax wise as you more or less just pay tax on what you earn at the same rate as a normal job.
Limited company introduces a whole of complications as the tax is a lot more complicated, basically it's the company that makes money and you have to pay yourself a salary from the company. You can make tax savings by paying yourself a smaller salary and taking the rest of the money as dividends, therefore paying less tax. You do however have to pay both employer and emploee national insurance. But can also write a lot more off against tax I think.

Most people hire an accountant if they go limited.

An umbrella company is a limited company that basically you send all your money and reciepts to and for a fee they work out everything for you. This cuts down on a lot of the administritive issues that you'd have to take care of yourself.

Another thing to watch out for is IR35. It's a government guideline basically introduced to stop contractors taking the **** with tax avoidance. If your contract is caught by IR35 then you pay tax like a sole trader. I'm not quite sure how they decide what is caught and what isn't but they should be able to tell you that before you start.

Basically it's all a big head f*ck but you can make a lot of money. I would contract myself out at £300-400 a day but depends on what area of IT you work in and the current market climate.

I'm not sure if they exist everywhere but up in Scotland we have an organisation called the business gateway which can offer advice and information on setting up your own company and their definitely worth a visit. Otherwise you'll have to scour the net. I used to have a couple of good links but I don't think I can find them any more.

I was contracting up until recently.

I'm a pretty cautious person, and I wasn't that keen on being taken to court at the end of a tax year because I'd not paid what I should have done. You can be above board, but if the government decides that you're not really a contractor, but someone contracting to reduce tax liability, you can get done.

I went through a company called Giant (http://www.giantgroup.com/) who I found to be very good.
They reduce your tax liability to a minimum but safe level, deal with your travel, subsitence, expenses etc, and will guarantee you won't get done (i.e. they will pay any fines if you do get done).
I found them very responsive when I had questions, and other than one minor glitch, had no problems at all.

I'd speak to them if I were you.

You apply to an Umbrella Company and they become your 'middleman'.
You work through the Umbrella company...the umbrella company get your money from your employer, they do the tax and stuff, take their share and give you whats left.

Easy peasy.

Cool, cheers guys. I'm leaning towards an umbrella company, at least to get started anyway.

Any ideas on comparing annual salaries?

Originally Posted by Kate

Cool, cheers guys. I'm leaning towards an umbrella company, at least to get started anyway.

Any ideas on comparing annual salaries?

You'll need to add up how many hours you intend to work and multiply them by your rate. In theory you should pay no more tax than you do just now ratewise so just do a like for like comparison on the total pay and that will be a worst case scenario for your contracting.

Also take into consideration holidays and sick days as you won't be paid for them

Originally Posted by sharriso74

Also take into consideration holidays and sick days as you won't be paid for them

Good point, most people work to a 46 or 48 week year.

Just been reading this - http://www.contractoruk.com/document...ontracting.pdf looks intesting

Dan